Legislative Issues Impacting New Jersey's Business Community
by Jeffrey T. Kaszerman, government relations director, NJCPA –
September 1, 2017
Most CPAs would agree that New Jersey’s tax and economic policies are not very conducive to economic growth.
For years, New Jersey business owners have been complaining about the impact of high state and property taxes, burdensome regulations and a litigious environment.Underlying all those problems is a huge unfunded
state pension liability that threatens the fiscal integrity of the state and the
financial security of hundreds of thousands of public sector workers.
At times, the Democratic Legislature and Republican Governor have worked together to pass significant reforms to reduce the burden on businesses. For example, they repealed the estate tax, placed a 2-percent cap on property taxes, established a stable funding source for transportation infrastructure projects and enacted a series of tax reform
measures (e.g., single sales tax factor).
More often though, the Legislature has passed measures opposed by business groups that were then vetoed by the Governor (e.g., Millionaires Tax).
Below we discuss some of the key business issues pending in the Legislature and their outlook for 2018.
According to Bloomberg News, New Jersey has an unfunded pension liability of $135 billion. This is a tremendous drag on the state budget, and it’s one of the worst pension liabilities in the nation. The liability was caused by a failure of the past six Governors — Democrats and Republicans — to contribute adequate funding to the pension system. In 2011, bipartisan legislation was passed that suspended cost-of-living increases for retirees and increased worker contributions in exchange
for a state promise to make increasingly large multibillion-dollar payments over the next seven years. At the time, lawmakers claimed that they had finally “fixed” the pension problem.
In 2014, Governor Christie, citing budgetary constraints, made a significant cut in the required payment. The public worker unions sued, but the New Jersey State Supreme Court ruled in the Governor’s favor.
Shortly thereafter, the bipartisan NJ Pension and Health Benefit Study Commission released a set of recommendations to reduce the state’s pension liability. Those recommendations would essentially
require deep cuts in worker benefits in exchange for a constitutional amendment that would require the state to pay of the pension debt over a 40-year period. It’s been described as a trade-of of reduced
benefits, more in line with private sector benefits, to guarantee solvency of the fund.
The panel’s recommendations were rejected by the unions and many of their Democratic supporters in the Legislature.The stalemate continues. What will happen in 2018 is anyone’s guess. A lot will depend
on who is elected governor. Democratic candidate Phil Murphy is on record as supporting a constitutional amendment that would require the state to make annual multibillion-dollar payments into the
pension fund. His opponent, Lieutenant Governor Kim Guadagno, is opposed to it.
The NJCPA is deeply concerned about the unfunded liability and has advocated for all interested parties to work together on forging a solution that uses the Commission’s report as a starting point for discussions. The NJCPA does not support a funding mechanism that is constitutionally
mandated. The constitution is not the proper forum for addressing such an issue and would hinder the state’s fiscal flexibility.
Increasing the Minimum Wage
Numerous bills have been introduced over the past few years to increase the state’s minimum wage to $15 per hour. Many have passed the Legislature only to be vetoed by the Governor. These bills are sure to be reintroduced in 2018, and their fate will largely depend on whomever is elected governor. Murphy supports the hike and Guadagno is opposed.
The NJCPA and other business groups have opposed attempts to hike the minimum wage to $15. While the NJCPA appreciates the Legislature’s efforts to help low-income workers, increasing the minimum wage as proposed would have a negative impact on small businesses. Paradoxically, the hike would harm the workers it is intended to benefit. If enacted, businesses would have only two choices in order to afford a $15 minimum wage: reduce their workforce and/or pass on their increased costs to consumers.
Implementing a Millionaires Tax
Over the past decade, there have been numerous attempts to impose a “millionaires tax” on high-income residents. The parameters and purposes of the measures have varied, but they would all have imposed a higher top marginal rate.
Although all the efforts at passing a millionaires tax have been vetoed by Governor Christie, members of the Democratic majority in the Legislature continue to push for this politically popular measure. The latest proposals would use the revenues raised to fund public pension plans or schools. Guadagno is opposed to the millionaires tax. Murphy has said “everything is on the table” and that he would consider the tax if necessary to fix the state’s fiscal problems.
The NJCPA has always opposed a millionaires tax. The Society believes it would have a negative impact on the business climate by increasing the outmigration of high-net-worth New Jerseyans and would harm thousands of small and medium-sized businesses that are pass-through entities. New Jersey already has enough high taxes, it doesn’t need another one.
Expanding Paid Family Leave
A4927, which was introduced in June, is moving rapidly through the legislative process. This bill would increase the benefits under New Jersey’s paid family leave law, one of only three states that have such a law.
The existing program offers new parents/caregivers up to six weeks of benefits equal to two-thirds of their pay and is capped at $633 per week. A4927 would offer up to 12 weeks and raise the cap to $932 per week. Unlike the current paid family leave law, the bill has no exemption for those who employ fewer than 50 workers.
Business groups oppose the bill because it will hurt small businesses by leaving them without key employees for long periods and by forcing them to hire and train replacement workers or pay overtime to coworkers.
If this bill passes the Legislature this year, and it looks like it will, Governor Christie will likely veto it. It would probably be reintroduced in 2018 and pass the Legislature in some form. Its fate would then depend on who the governor is. While neither candidate has yet taken a position on this specific bill, it is likely that candidate Murphy would be more favorably disposed than Guadagno.